U.S. Markets

Large-scale joint EU borrowing should remain one-off: Weidmann

FILE PHOTO: German Bundesbank President Jens Weidmann speaks at a news conference during the G20 Finance Ministers and Central Bank Governors Meeting in Fukuoka, Japan June 9, 2019. REUTERS/Kim Kyung-Hoon/Pool

FRANKFURT (Reuters) - Joint borrowing by European nations to overcome a pandemic shock should remain a one-off, Bundesbank President Jens Weidmann said on Monday, seemingly rebuffing European Central Bank President Christine Lagarde’s call for a common budgetary tool.

With the continent reeling under the weight of a coronavirus-induced recession, European Union leaders agreed on an unprecedented 750 billion euro recovery package, funded by a joint debt issuance, a once-taboo subject long criticised by Germany.

“What is worrying is the large-scale borrowing at the EU level,” Weidmann, who also sits on the ECB’s Governing Council said in a speech. “This kind of borrowing should remain a one-off crisis measure, as permanently raising joint debt does not square with the EU’s institutional framework.”

His comments come just hours after Lagarde said she hoped that Europe’s “extraordinary” scheme could remain in the European toolbox and there would be a debate about a common budgetary tool for the euro zone.

But Weidmann argued that shifting financial liability to the euro zone level would require member states to transfer fiscal policy powers to the bloc as well.

“Much closer political integration would be needed and, eventually, the EU would have to evolve into a democratic federal state,” Weidmann said.

Instead, euro zone countries could exercise better fiscal responsibility and ensure solid finances, he argued.

Reporting by Balazs Koranyi; Editing by Mark Heinrich